Aggregator leaders unsurprised that rate remains on hold
The Reserve Bank of Australia is maintaining its cautious approach when it comes providing mortgage relief to borrowers, deciding to leave the official cash rate unchanged at its March meeting.
The RBA board, led by governor Michele Bullock, kept the OCR on hold at 4.35% and the interest rate on exchange settlement balances unchanged at 4.25% when it met on Tuesday.
This is the third consecutive Reserve Bank meeting in which the board has decided to leave the cash rate unchanged.
Bullock said recent information suggested that inflation continues to moderate, in line with the RBA’s latest forecasts.
“The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation,” Bullock said.
“Services inflation remains elevated, and is moderating at a more gradual pace. The data are consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.”
The RBA said higher interest rates were working to establish a more sustainable balance between aggregate demand and supply in the economy, and “conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.”
“While recent data indicate that inflation is easing, it remains high. The board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.”
The decision is in line with the predictions of 41 economists and other industry figures in the Finder RBA Cash Rate Survey on Monday, with all saying the Reserve Bank would not move on interest rates in March.
MPA also sought reaction from leaders at some of the top broker networks – National Mortgage Brokers, Mortgage Choice and Connective, who had all tipped no change to the rate.
RBA should cut cash rate in May - nMB
Gerald Foley (pictured above left), managing director of nMB said the Reserve Bank keeping the cash rate at 4.35% was no surprise.
“This decision is in line with where the RBA signalled in February they would land in March,” Foley said.
However, there was a solid argument for the RBA to move to a rate-cutting cycle more quickly, as early as May.
“With borrowers now having copped nearly two years of rising mortgage rates and cost of living increases, pressure is building though to provide some relief,” Foley said.
“The continued reporting of an economy that is weakening has to turn the RBA soon. The February unemployment rate, as just one indicator, increasing to 4.1% is the highest it has been since early 2022 and points to a cut being needed soon to avoid pushing the economy to breaking point.”
Foley said any cuts, or even an extended hold period, would be enough to see buyers start to come back into the market.
“Given there is no meeting scheduled now until 7 May, with a further six to eight weeks of poor economic data likely to drop, I feel there will sufficient justification for the first of a small number of rate cuts in May.
“From there, maybe one more cut before the RBA will then sit back and wait for the impact of the July tax cuts on spending.”
Borrowers should act now on home loans – Mortgage Choice
Mortgage Choice CEO Anthony Waldron (pictured above second from left) said given the latest economic data, it was unsurprising that the RBA decided to keep the cash rate on hold.
The economy is slowing, annual inflation is at the lowest level seen since November 2021, and households are cutting back on spending, suggesting that high interest rates are having the intended effect,” Waldron said.
Data from the Australian Bureau of Statistics revealed that the economy was slowing. Although GDP rose 0.20% in the December quarter it slowed across each quarter in 2023 and strong population growth saw GDP per person fall over the year.
Waldron said the monthly Consumer Price Index was steady in the 12 months to January 2024 at 3.40%, showing inflation was heading in the right direction. Add in this sentence: The annual change in retail trade has slowed to 1.1% in January 2024 from 7.7% in January 2023.
Waldron said ABS data also revealed that the labour market had weakened, with unemployment rising above 4% for the first time in two years, a consequence of higher interest rates, persistent inflation and global economic uncertainty.
“If the labour market continues to weaken, this could provide further support for a cash rate cut to stimulate economic growth,” he said.
“While the signs point to a rate cut later this year, there’s no way to predict exactly when a cut might occur. I’d encourage borrowers to take control of their home loans now, rather than wait and see.
“If you haven’t had your home loan reviewed in the last 12 months, it’s a great time to speak to your broker to ensure your loan is still meeting your needs.”
Mortgage Choice home loan submission data indicated borrowers may be anticipating rate cuts. The February data showed that just 2% of loans submitted had a fixed component, with most customers opting for variable rate home loans. Available data for March suggests this trend in borrower preference is set to continue.
The PropTrack Home Price Index shows that expectations of interest rate cuts are providing tailwinds for the housing market. The latest index revealed that national home prices lifted 0.45% to hit a new record in February.
PropTrack senior economist Eleanor Creagh (pictured above second from right) said the RBA’s decision to hold the cash rate steady in March would maintain both buyer and seller confidence.
“Looking ahead, the next move for interest rates is likely to be down,” Creagh said.
“Despite a weaker outlook for the economy, the positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability.
“As a result, prices are expected to lift further in the months ahead, particularly while the expectation remains that interest rates will move lower in late 2024.”
Interest rate cuts on card if inflation falls further – Connective
Connective executive director Mark Haron (pictured above far right) said Australians had been given another brief reprieve with the hold on interest rates this month.
“We anticipate potential rate cuts later this year if inflation continues its downward trend,” Haron said. “This, combined with steady rates, could stimulate growth across the property market.”
“Borrowers are already showing renewed interest with our data revealing that January and February applications are up 15% on the prior year. This trend is likely to flow on to settlements later in 2024, highlighting the increasing demand for brokers.
“Brokers remain a crucial resource for borrowers. It’s an opportunity for them to focus on delivering outstanding outcomes for their clients by sharing knowledge and informing clients so they can make informed financial decisions.”
What do you think of the RBA's decision to leave the cash rate on hold? Should it cut the rate sooner? Comment below
